On September 1, of the current year, Samuel, a cash-basis taxpayer, sells his fa

Question

On September 1, of the current year, Samuel, a cash-basis taxpayer, sells his farm to Edward, also a cash-basis taxpayer, for $100,000. James' basis in the farm is $65,000. The real property tax year is the calendar year. Real estate taxes on the property for the year are $3,650 and are payable April 1 of the following year. The sales agreement does not provide for apportionment of real estate taxes between the buyer and seller. Assume Samuel pays all of the real estate taxes prior to the saler. The effects of this sales structure will be:

Taxes allocated to Samuel          Taxes allocated to Edward              Effect on Samuals gain

Explanation / Answer

Taxes allocated to Samuel Taxes allocated to Edward Effect on Samuel's Gain

$2,430 $1,220 decrease gain by $2,430

Taxes allocated to Edward:

(122/365 days)

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